Imperial Brands H1 Earnings Call Highlights

Key Points

• Imperial Brands said it remains on track to meet full-year targets, with first-half growth in tobacco and next-generation products net revenue and free cash flow of GBP 2.6 billion over the past 12 months. The company also raised its ordinary dividend by 4% and reaffirmed plans for at least high single-digit EPS growth.
• Management said tobacco pricing more than offset volume declines, helping group adjusted operating profit rise 0.6%, though market share fell slightly as the company prioritized margin over low-return volume. NGP growth was weaker than expected because of U.S. promotional timing, but Imperial said underlying growth would have been stronger without that effect.
• Imperial expects one-off headwinds from the U.S. tariff impact, Australia volume declines, and its exit from U.S. vapor to ease in the second half. It maintained guidance for low single-digit tobacco revenue growth, double-digit NGP growth, and at least GBP 2.2 billion in free cash flow while continuing its transformation program and share buybacks.

Imperial Brands LON: IMB said it remained on track to meet its full-year targets after reporting first-half growth in tobacco and next-generation products net revenue, while management highlighted one-off headwinds in the U.S. and Australia and continued progress on its Evolve 2030 strategy.

Chief Executive Lukas Paravicini said the first six months of fiscal 2026 also marked the first six months of the company’s Evolve 2030 strategy. He said Imperial’s “consistent financial performance” continued to support growth in net revenue and adjusted operating profit, with free cash flow of GBP 2.6 billion generated over the past 12 months.

The company announced a 4% increase in its ordinary dividend and said it was on track with its GBP 1.45 billion share buyback. Paravicini said Imperial was targeting “at least high single-digit growth in EPS” for the full year.

Pricing Offsets Volume Declines in Tobacco

Chief Financial Officer Murray McGowan said the first half was a period of “broad-based growth,” with tobacco net revenue supported by pricing that more than offset volume declines. Group adjusted operating profit rose 0.6%, reflecting growth in the tobacco business and NGP, partly offset by headwinds at Logista and one-off factors in the U.S. and Australia.

McGowan said tobacco operating profit growth was driven by Europe, which grew 6.5%, and by the Africa, Asia and Central & Eastern Europe region, excluding Australia, which grew 10.8%. In Europe, pricing of 6% outpaced volume declines, while U.S. pricing of 5.7% was driven by cigarettes and the mass-market cigars portfolio. In the ACE region, volume growth reflected entry into new markets, and excluding Australia, price mix was 6.1%.

Paravicini said Imperial was “carefully balancing” price, volume and share in combustibles. He said the company’s aggregate market share across its five priority markets declined by 60 basis points, but framed the decline as a deliberate focus on value rather than low-return volume.

“Not all basis points of market share are equal,” Paravicini said, noting that wider gross margin gaps between premium and deep-discount segments were leading the company to take a more focused, segment-by-segment approach.

NGP Growth Affected by U.S. Promotional Timing

Imperial said it grew share and volumes across all three NGP categories, but NGP revenue growth in the first half was below the company’s full-year target for double-digit growth. Management attributed the shortfall largely to the timing of promotional activity in the U.S. around the prior year-end.

McGowan said the promotional activity reduced NGP net revenue and increased NGP losses by about GBP 13 million. Excluding that effect, U.S. NGP net revenue growth would have been positive, group NGP net revenue growth would have been double-digit, and NGP losses would have declined year over year in the first half, he said.

Paravicini said the company’s U.S. modern oral brand Zone had grown volume ahead of the category, lifting share to 2.8%, and that net revenue grew 20% excluding the impact of the year-end promotional activity. He said Imperial remained focused on “patiently growing volume share” through differentiated brands and consumer activation, including its NASCAR partnership.

In Europe, Paravicini said Skruf had become the biggest brand in Norway, while Zone had reached a 3% share in the U.K. independent channel and was being rolled out across national accounts. In vapor, he said share rose 130 basis points across Imperial’s footprint, with particular strength in the U.K. and France following bans on disposable devices. Heated tobacco also gained share across all markets, supported by the Pulze 3.0 device and iSENZIA flavored herbal sticks.

One-Off Headwinds Expected to Ease

McGowan said one-off factors in the first half had an impact of more than GBP 50 million, but that the drag should be “much reduced” in the second half.

• In the U.S., tariffs on mass-market cigars weighed on first-half performance, though McGowan said the impact should reduce in the second half following changes to tariffs after a February Supreme Court decision.
• In Australia, accelerated volume declines of around 50% affected adjusted operating profit, but McGowan said the company expected a smaller year-over-year drag in the second half as it annualizes the declines.
• In NGP, Imperial is transitioning out of the U.S. vapor category, a move McGowan said would help reduce NGP losses in the second half.

Paravicini said the decision to exit U.S. vapor was separate from recent FDA announcements. He described myblu as a nearly decade-old legacy product that made a “small and declining contribution” and was loss-making.

Guidance Maintained

Imperial maintained its full-year outlook. McGowan said the company continued to expect low single-digit tobacco net revenue growth and double-digit NGP net revenue growth, both at constant currency. Adjusted operating profit growth is expected to be within the company’s medium-term range of 3% to 5%, while EPS growth is expected to be at least high single digit.

The company also expects at least GBP 2.2 billion of free cash flow, including cash costs related to the Delaware settlement and implementation of its 2030 strategy. McGowan said leverage was 2.4 times at the half year, higher than at the full year for seasonal reasons but flat year over year and within the company’s target range.

On capital allocation, McGowan said Imperial’s current share buyback represented its fourth consecutive year of repurchases, bringing total capital returned to investors through the program to GBP 4.8 billion. Including dividends, cumulative capital returns from fiscal 2021 to the first half of fiscal 2026 totaled GBP 11.5 billion.

Transformation Program Advances

Paravicini said Imperial was making progress on self-help efficiencies and capabilities intended to support long-term growth. He said the company remained on track to deliver GBP 320 million of annual savings by the end of the strategic period.

The company has completed social plan negotiations related to its Langenhagen factory in Germany and remains on track to cease production there in July 2027. It also announced the sale of its Taiwan factory. Paravicini said the two actions together would reduce overheads by GBP 100 million when completed.

Imperial also expects GBP 25 million of manufacturing-efficiency benefits in fiscal 2026 and is transferring about 400 roles to its strategic partner Capgemini. Paravicini said the partnership would help accelerate technology adoption, simplify processes and support platforms including SAP S/4HANA, Salesforce and Blue Yonder.

During the question-and-answer session, management said the conflict in the Middle East had not had a material impact to date, though McGowan said the company was monitoring potential effects on input costs, duty-free volumes and consumer demand. He said Imperial was still confirming its full-year guidance.

Management also addressed potential German tax changes. McGowan said Germany typically has a predictable five-year tax-planning framework and that any changes were unlikely to affect the current financial year, with possible impacts more likely from fiscal 2027 onward.

Paravicini closed the call by saying Imperial had delivered growth in net revenue and operating profit in the first half while generating strong cash flow, adding that the company was also “transforming for tomorrow” through efficiency efforts and capability building.

About Imperial Brands LON: IMB

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